Broadband and Rural Economies – Maybe Small Is Better

Rural communities should set realistic goals for how broadband will affect the economy. Even small changes can make a big difference, says broadband consultant Craig Settles.

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In the early 2000s, one of the benefits of community broadband that excited rural and small town America was the prospect of getting midsize and large companies to locate a facility in these towns and brings of hundreds of jobs. That dream persists, but it might unrealistic or counterproductive to some small communities.

“Many broadband policymakers live in large metropolitan areas and this shapes their perceptions that the main outcomes should produce hundreds of jobs,” says Don Sidlowsky, former town chairman of Three Lakes, Wisconsin. Though retired, he keeps a finger on the broadband pulse of his community.

For a town his size, a business bringing three or four new jobs into the community is a big deal economically. “Every dollar they spend might exchange hands in town eight or nine times,” Sidlowsky says.

While it is nice to have big dreams, some rural stakeholders find that it is better overall to temper economic expectations. But that doesn’t mean rural Americans want to skimp on speed.

What if small towns don’t want to be the next Chattanooga?

For some communities, their economic development goal consists of maintaining the status quo. Sebewaing, Michigan, is one of those towns. Their public utility, Sebewaing Light and Water (SLW), has built a gigabit network for the community.

SLW Superintendent Melanie McCoy says that theirs is a developed community of 1,800 residents and they feel they have everything they need in terms of businesses. Building a network, however, will help maintain the companies already operating in town. McCoy likes to joke that Sebewaing “is very boring, we don’t have grand visions of being the next Chattanooga.”

Generating revenue sufficient to cover on-going operating costs and retiring debt incurred to build the original network is considered financial success. SLW built a gigabit network in 2014. McCoy stated at the time, “If we can get 500 of our 1,800 residents to subscriber to the network, revenue would pay off the $1.7 million investment in the network buildout in eight years.” She reports that the city installed its 528th customer this past May, less than three years after the launch date.

“Three Lakes decided the best strategy to boost our economy was to use broadband to turn home offices into global operations,” says Sidlowsky. Research supported the assumptions. The town’s seasonal population included a fair number of executives with annual salaries in the $100,000 range.

The town’s broadband committee calculated that one such individual moving to Three Lakes and spending money all year would be significant. Furthermore, a high-level executive or department director could decide to set up a small satellite operation and hire several local people as support.

“We set a goal of getting five-to-10 such individuals to move here and telecommute,” Sidlowsky says. This increase of satellite offices drives the need to attract or grow locally service businesses. Long term, this contributes to a strong local economy.

The broadband economics of city folk who love the country

When communities sit down to set economic goals, they should expect realistic results. Communities may get excited about attracting data centers, for example, which you can’t entice without high-speed Internet. But data centers don’t require a lot of workers, it’s easy to lose money operating them. On the other hand, such a business could generate other jobs indirectly.

Mike Ockenga, Manager of IP Services at Finley Engineering agrees. “Having a gig-powered data center can entice large content providers like Netflix and Google to establish a facility in the area. Convincing corporations, even non-high tech ones, to build data centers can give a community a higher profile with smaller companies considering opening there. We’’ve also seen data centers spawn entrepreneurs selling telephony services.”

Kit Carson Electric Cooperative in New Mexico, which has 29,000 members, shares Three Lakes’ economic development philosophy. CEO Luis Reyes says, “We also want to attract businesses that can be eight or 10 people. This represents a noticeable impact on a small-town job market. However, if there is a downturn in the market and a few businesses lay off people or go out of business, it’s not nearly as bad as when a single huge company leaves town.”

Kit Carson started building out its network in 1999, and since then has constructed 3,000 miles infrastructure that covers all of its members. The bulk of the buildout occurred after the co-op received a $64 million broadband stimulus grant in 2011 to cover Taos (where Kit Carson is located), Colfax and Rio Arriba counties.

The co-op is now working with the cities and the counties to determine how to take advantage of the economic development benefits of fiber. Kit Carson recently partnered with a ski corporation that also builds golf courses and owns a couple of hotels.

“We work with another organization to offer gigabit bandwidth from a central location for the guests of the ski lodge, golf courses, etc.,” says Reyes. “This allows us to target people who want to work or play here for some amount of time, and be assured that they can stay connected to their offices.”

Some of these visitors will be candidates for a second home and telecommute from northern New Mexico, Reyes says. “We are encouraging them to establish small and home-based businesses that support bigger businesses in California, Texas, and Colorado. Besides top-level management, we are targeting young engineers, software developers, and other professions who can work from anywhere as long as they have a strong Internet connection.”

Ultimately, it may make sense for broadband planners to involve economic development professionals in their goal setting. But expectations should be scaled to match reality.

Some communities should consider broadband’s impact on home businesses, rather than think they can attract mid-sized or large employers.

“According to our survey, 20% of the 3,000 homes in the first phase of our buildout have home offices,” reports Michael Keyser, CEO BARC Electric Cooperative in Virginia. “They have to drive into town and set up their laptop at a café in order to work.”

Craig Settles is a broadband industry analyst, consultant to local governments, and author of Building the Gigabit City. His latest analyst’s report is “The Co-op’s Broadband Plan for Success.”